Martin Lewis calls for more support for mortgage borrowers during meeting with the Chancellor and lenders
Mortgage lenders have been pushed to offer more support for struggling homeowners following a meeting with MoneySavingExpert.com founder Martin Lewis, the Chancellor Jeremy Hunt, and the financial regulator. The move comes as homeowners continue to face higher and significantly more expensive interest rates amid the cost-of-living crisis.
Martin Lewis, MoneySavingExpert.com founder, said: "The major concern for people’s mortgages – and the knock-on impact of mortgage increases on rents – is the situation in the spring, when we expect interest rates to be higher, energy prices to be rising, and other cost of living impacts.
"So the most important thing is that now the conversations have started about what flexibility and forbearance measures can be put in place to help those struggling. The commitments today set a good direction, and after helpful conversations I’m hopeful that further progress will be made. For those worried about making mortgage repayments, the sooner you communicate with your lender the better."
What was discussed at the meeting
Martin urged lenders to do all they can to help homeowners who are struggling with mortgage repayments. In particular, Martin's key messages included:
- Communication. Ensuring lenders are transparent and up front about the potential measures of support available, but also making clear the potential implications if a borrower does accept mortgage help.
- Reversibility. Where forbearance has been agreed, lenders should make it easier for borrowers to do this temporarily or to switch back to the original terms of their mortgage when ready to do so. For example, where temporarily paying interest-only.
- Credit reports. Reducing the impact of accepting mortgage forbearance on a homeowner's credit report.
What's being asked of lenders to help mortgage borrowers
As a result of the meeting, the FCA has issued guidance to lenders that clarifies how they should treat homeowners who are struggling with mortgage payments as a result of the cost-of-living crisis. The guidance largely encourages lenders to offer struggling homeowners the full range of mortgage contract variations and/or forbearance options that are normally at their disposal.
Such measures can include:
- Switching temporarily to an interest-only mortgage. Here, you are no longer paying off the actual loan itself, just the interest that's accruing. Importantly, if the switch to interest-only is only for a temporary period (and there are no other changes to your mortgage), borrowers shouldn't need to undergo any form of affordability assessment – meaning the switch should take place smoothly.
However, if you're considering switching to an interest-only mortgage permanently, you will have to undergo an affordability assessment and prove you'll be able to repay the capital owed at the end of the mortgage term.
- Taking a break from repayments. This might be in part or in full, and will only be on a temporary basis. Interest will most likely continue to accrue on your mortgage balance while you are not making repayments. As this is a payment deferral, when you do resume payments, you may face a higher monthly bill to cover what you missed.
- Extending the term of your mortgage. For example, from 25 to 30 years. This means you spread the debt over a longer period, reducing the amount that needs repaying each month. Where there are no other changes to your mortgage, extending your term shouldn't require any affordability assessment – unless you're extending it past your retirement age.
The FCA said: "If a customer indicates that they are experiencing or reasonably expect to experience payment difficulties due to the rising cost of living, firms should offer prospective forbearance to enable them to avoid, reduce, or manage any payment shortfall that would otherwise arise."
This guidance is not, however, prescriptive, meaning lenders are able to – and should – tailor the support available to their borrowers.
If you're struggling, or fear you might begin to, get in touch with your lender to see what help it offers. It's important to remember that simply getting in touch with your lender to ask what support is available does not impact your credit file. For tips on how best to avoid getting into mortgage arrears, and what other support is out there, see our Mortgage Arrears guide.